A PetroVietnam rig in the East Sea. Analysts are skeptical about a recent claim by a Chinese oil company that bidding to explore in what are Vietnamese waters is progressing smoothly

International companies will be wary of getting embroiled in territorial disputes and will not take up China's invitation to explore in Vietnamese waters, analysts say

International experts have dismissed China's invitation to oil companies to bid for drilling rights in what are Vietnamese waters in the East Sea, saying no company will be willing to take the risk.

"I think they are just blowing smoke," said Mark Valencia, a Hawaii-based maritime policy analyst said, referring to a recent statement by the China National Offshore Oil Corporation (CNOOC), which floated the tender, that the bids were progressing well.

On June 23, the state-owned firm invited foreign companies to jointly develop nine blocks in the western part of the South China Sea, as the East Sea is also known.

Vietnam said the tender was illegal because the blocks were located well inside its exclusive economic zone and not in the disputed area.

The Vietnam National Oil and Gas Group (PetroVietnam) has demanded that CNOOC stop calling for bids in Vietnamese territorial waters and called on foreign companies not to bid.

On Tuesday, Reuters quoted CNOOC chairman Wang Yilin as saying that "the tender moves on smoothly...we are following it up according to procedure.

"I can tell you that some US-based companies have expressed interest."

Valencia said it is possible that small firms could take up the concessions so that they can sell their interest to bigger firms "when the time is ripe."

"It is a big risk but it has been done successfully before. But these are investors/gamblers not really oil exploration/production firms," he said.

Vietweek contacted around 50 of the biggest American oil and gas companies and not one admitted it plans to join the bid. Several said they are not interested in it.

Business as usual

On July 9, PetroVietnam said its operations had been "normal" since CNOOC issued the invitation for bids.

PetroVietnam chairman Phung Dinh Thuc assured a press conference that day that the company would continue its operations in Vietnam's continental shelf, where it has been cooperating with firms from countries like the US, India, and Russia.

"PetroVietnam has taken all measures to maintain its business operations in line with international laws, so (the partners) can rest assured," he said.

On Wednesday, Russian gas giant Gazprom said in a statement: "The diplomatic conflict between China and Vietnam is outside the scope of our competencies. Until this moment we have not received any other information or orders to stop this project."

Indian company ONGC Videsh Ltd (OVL) also said it would continue exploration activities in Vietnam's hydrocarbon block No. 128 for another two years, Indian newspaper Mint reported.

Such an approach would also assert India's presence in the region, the newspaper said.

Interestingly, block No. 128 is among the nine for which China has called for bids. OVL recently signed an MOU with the China National Petroleum Corp, the country's largest oil firm, to jointly explore for oil and natural gas worldwide.

Unexpected results

Valencia said: "The [US] State Department goes out of its way to discourage US firms from taking concessions in disputed areas."

Carl Thayer of the University of New South Wales, Australia, said China is challenging Vietnam's claim to sovereign jurisdiction over the resources in its exclusive economic zone (EEZ).

"China gains by muddying the legal waters by attempting to make Vietnam's EEZs inside the u-shaped line a disputed area."

But no firm would respond to CNOOC's bid invitation, he said.

"Chinese actions will force western oil companies to assess the risks of exploring for oil and gas in Vietnamese waters. These companies might slow their investment. Other companies may be deterred from becoming involved altogether."